HPQ, DELL: January-Qtr Estimates Need to Come Down, Says Mizuho

By Tiernan Ray

Mizuho Securities’s Abhey Lamba this afternoon continues the drumbeat of negative news for PC stocks, warning that his “checks” suggest the personal computer market “remains very weak due to consumer slowdown, cannibalization by tablets and high price points.”

Lamba, who rates Hewlett-Packard (HPQ) shares Underperform, and rates Dell (DELL) Neutral, thinks estimates for both companies can go lower as a consequence this quarter (Dell reports a January-ending fiscal Q4 while HP reports a January ending Q1):

We are expecting the PC market to be roughly flat sequentially, which implies year-over year decline of 8% in C4Q12 and a fall of 4% for 2012. We believe tablets will continue to gain significant mindshare among consumers whereby the market is favoring Apple at the higher end and lower priced Android devices at the lower end. Windows 8 based tablets lack significant OEM support and Microsoft’s distribution of Surface remains highly limited. As such, Windows will likely occupy the third spot among platform vendors in the space [...] We believe consensus estimates for Dell and HP have yet to fully account for the slowdown. For HP’s January quarter, PC revenue estimates could move lower by ~$1B as consensus is only looking for a 5% Y/Y decline whereas we expect the company to post nearly 20% fall in PC sales. For Dell, January estimates seem reasonable, but the FY14 PC forecast could move lower by ~$3B. We believe downside to estimates will weigh on their stock performance. While Dell has some valuation support, HP is likely to underperform due continued internal and external challenges.

Lamba thinks Apple‘s (AAPL) iPad will continue to contribute to that cannibalization of PCs by tablets, but he also warns of potential downside for iPad estimates this quarter given that the newer mini model is taking most of the demand and is supply-constrained relative to the full-size model:

Although iPad remains the market leader in the tablet space and it continues tosolidify its number one position, the company’s higher end tablet is being increasingly cannibalized by the lower end iPad mini. In our view, the iPad mini offers almost the same value as the larger iPad but is available for a significant discount, which is a big driver in the current macro environment and it also speaks to the price elasticity of the tablet market. As a result, we are also seeing an increasing demand for sub $200 tablets where Android is gaining share [...] Regarding iPad estimates, we believe current consensus of $11 billion for the December quarter (up 24% yearover-year) is too high. Assuming an ASP of about $450 (down 25% year-over-year), consensus iPad shipment forecast is around 25 million, which seems quite high giventhe lackluster demand being experienced by larger iPads. We are modeling iPad units to be around 20 million and ASP around $475. We believe the company is likely to deliver iPad revenues slightly below $10 billion for the quarter.

Shares of Hewlett-Packard are up 6 cents, or 0.6%, at $13.89, while shares of Dell are down 8 cents, or 0.7%, at $10.41. The stocks have had a very good week, however, despite an intense flow of negative commentary about the PC market. HP shares are up 7% since last Friday’s close, while Dell shares are up almost 8%.

Shares of Apple are off $15.16, or almost 3%, at $532.08, and are down almost 9% for the week.

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